Lululemon Shares Dropped After the Company Cut Its Annual Forecast. Is the Stock a Buy Amid the Selloff?
A week ago, I predicted that Lululemon Athletica (NASDAQ:LULU) stock would take a beating if the company reported weak earnings or lowered its 2026 guidance. And unfortunately, both of those things happened when the company posted its fiscal 2026 first-quarter report on June 4.
Now the company is trading at an eight-year low, having fallen more than 12% post-earnings. Where does the athleisure company go from here?
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Lululemon’s earnings by the numbers
First, let’s see what happened. For the quarter ending May 3, Lululemon posted revenue of $2.47 billion, up from $2.37 billion a year ago. However, the cost of goods sold jumped 14% year over year, pushing the company’s gross profit down by more than 4%. On top of that, Lululemon’s selling and general expenses rose 12.4%, to $1.05 billion. All that led to the company’s net income falling 38% to $195 million for the quarter. Earnings per share were $1.69, versus $2.60 in the same period a year ago.
While Lululemon is growing in popularity in China, its biggest problem lies in domestic sales, as revenue and comparable sales in the U.S. were down significantly from last year.
|
Net Revenue |
Change |
Foreign Exchange |
Change in Constant Dollars |
|---|---|---|---|
|
United States |
(4%) |
-% |
(4%) |
|
Canada |
(3%) |
(3%) |
(6%) |
|
Americas |
(3%) |
(1%) |
(4%) |
|
China Mainland |
30% |
(7%) |
23% |
|
Rest of World |
13% |
(4%) |
16% |
|
Total International |
22% |
(6%) |
16% |
|
Total |
4% |
(2%) |
2% |
Source: Lululemon
|
Comparable Sales |
Change |
Foreign Exchange |
Change in Constant Dollars |
|---|---|---|---|
|
Americas |
(5%) |
(1%) |
(6%) |
|
China Mainland |
20% |
(7%) |
13% |
|
Rest of World |
13% |
(5%) |
1% |
|
Total |
1% |
(3%) |
(2%) |
Source: Lululemon
Management also cut full-year guidance, now projecting revenue of $11 billion to $11.15 billion, a decline of up to 1% from a year ago. Earnings per share are expected to be in the range of $10.95 to $11.15.
Interim co-CEO Meghan Frank acknowledged “a few headwinds and a moderating sales trend” and placed the blame on poor product launches and “spikes of negative commentary in the media and on social channels with regard to our brand, which had an impact on traffic and overall top-line performance.”
A proxy fight takes a toll on earnings
Frank didn’t mention him by name, but at least part of that negative commentary stemmed from a very public proxy fight with founder Chip Wilson, which was settled just days before the earnings report. Wilson, who left the company in 2013 and continues to hold nearly 9% of the company’s stock, has been an outspoken critic, accusing the company of squandering “billions of dollars in brand power.”
